As the COVID-19 pandemic set in, liquidity, credit and working capital occupied the financial headlines. But as thousands of corporate treasurers started settling into a working-from-home environment, running day-to-day operations, such as those related to FX, created its own set of challenges. We spoke to Johnny Grimes, Global Head of Liquidity Product, Transactional FX & Head of Corporate Bank Ireland, Deutsche Bank, to find out how banks have responded.
Looking back to the start of the crisis, what challenges did FX face in the switch to a working-from-home environment?
As a discipline within treasury, FX took a lower priority at the early stages of the COVID-19 crisis. As treasurers turned their attention to liquidity, credit and working capital, the focus within FX quickly became exception management. Solutions needed to work as fluidly as possible, so that day-to-day operations did not disrupt our overarching priorities.
Of course, as people moved out of their normal office environment to work from home, this was not without its challenges. When dealing with exceptional events, it is important to receive timely information and be able to rapidly respond to this with the appropriate steps – something made all the harder by remote working. But this is where digital access to FX markets has really come into its own, enabling treasurers to continue mitigating operational risk whilst remaining agile in volatile markets.
In your view, how well prepared were FX departments to deal with the crisis?
It’s a strange thing to say, but the crisis has actually come at a relatively fortuitous time for FX. Over the past few years, FX trading has rapidly evolved, with digital platforms, sweeping electronification, sophisticated data analytics and the addition of mobile applications representing just a few key trends shaping the market.
These platforms are being used by treasurers at multinationals, mid-caps and start-ups, portfolio managers and FX traders around the world – and their use is increasing. Before COVID-19, the upshot of this increasingly digital landscape was greater choice for tech-savvy clients, but it has fast become a key differentiator between maintaining or not maintaining your operations.
The priorities at the start of the crisis were twofold: ensure day-to-day FX operations continue as seamlessly as possible, and be prepared to swiftly react to any exceptional events.
Take one exceptional event that occurred at the very beginning of the crisis: the suspension of the interbank FX market in the Philippines. This had an immediate impact, affecting many important payment processes, including salary and pension payments, repayment of loans, intercompany funding and merchant sales proceeds. Outside of the Philippines, we’ve also seen adjustments to market opening hours and cut-off times, which have had an impact on international payment processing workflows. Getting the FX fundamentals right, and being able to swiftly adapt to unprecedented circumstances, have been critical during this period of crisis: digital FX platforms have proven to be a key companion.
To what extent can businesses plan and prepare for shocks like COVID-19?
While there is no easy way to prepare or plan for such an unprecedented crisis, businesses can put solutions in place that allow them to allocate their time wisely – having the capacity to react to situations and events effectively certainly helps. One example would be the use of an automated cross-currency liquidity structure by Goodyear – one of the world’s leading tyre companies (this project is the 2020 Adam Smith Awards Overall Winner in the Best Liquidity Management Solution category: the full Treasury Today case study will follow shortly).
Goodyear recently completed the implementation of a robotics solution that automatically converts positions on master accounts in multiple currencies into euros – using FX swaps to manage and increase its euro liquidity. The core benefits for Goodyear’s treasury team have been twofold: it has been able to reduce operational risk while bolstering operational efficiencies. Put simply, the reduction of manual efforts means it now has more time to focus on urgent treasury processes – many of which have flared up as a result of COVID-19.
While implementation of these solutions can require careful work and planning, I think it is certainly something treasurers will be more aware of, and perhaps more inclined to commit to, going forward.
What changes within FX do you see arising as a result of the COVID-19 crisis?
At the beginning, the first thing that people observed was concern about everybody working from home: would business as usual continue to be business as usual? I think this crisis has shown that the day-to-day and exception management processes that companies have, both on the bank side and on the client side, really can stand up to a lot of scrutiny – especially when paired with digital solutions.
The crisis has certainly accelerated the shift towards an increasingly digital landscape. We have been able to test a lot of scenarios around remote working and have definitive answers on how this impacts us from an operations perspective. And we have proven that having digital solutions that operate on a global scale can allow you to remotely operate very high-flow and high-transaction-volume businesses.
This is something that simply would never have been tested, or perhaps even considered, before. And from a treasury perspective, when you look at a lot of the regional treasury models, in-house bank models and models with control devolved to different locations, it will be interesting to see how this continues to evolve now we have the experience of remote working for an extended period and during stress scenarios.
So I think regardless of when normality returns, this experience will have made a lasting impression, giving us assurances that modern day FX processes, leveraging digital channels, are resilient to shocks and that we can manage in a non-office environment.